E-Currencies
Just the other day I was reading about digital gold currencies on Wikipedia and got thinking about why they haven’t become popular. While any currency is a matter of trust and familiarity, which none of them seem to have, there is also the problem that they are run as for-profit ventures. Because of that, the issuing companies have to charge a fee somehow, and they do so by either “taxing” holdings or transactions. In addition, you can only hold the currencies in their respective companies’ accounts, meaning that the issuing bank is the same as one’s personal bank. That would be like being able to only have bank accounts with the Federal Reserve Bank if you want to own US dollars. So, not only are you paying a fee for the ability to use a digital gold currency, you also have no choice in financial institutions–doesn’t sound very attractive to me. Consider also the issue of transferring money: both sender and recipient have to have accounts. There’s no real anonymity and, more interesting to me, you can’t do the transfer away from a networked computer (of course, that is the nature of a digital currency).
So, how could it be done differently? Well, first of all, I think any non-governmental currency is going to have to be backed by a precious metal or have another built-in source of value (such as being accepted in a virtual world). I don’t think you should have a accounts where people hold the currency, including fractional values. Rather, I would suggest that, just like normal paper currencies, the currency should simply be issued in ‘notes’. Why? Because then, just like with paper money, you can transfer notes between individuals, without reporting back to the issuing back that you wish to debit one account and deposit the amount in another. What form would the notes take? Well, basically just a hash. You would have it so only the issuing organization can create the notes, but everyone can see their value. That way you could easily email some money or even physically give someone some–just write down the hashes on a piece of paper. Because each hash represents a set value of money, you can’t give someone one note representing 11.53 but would have to have, for example, hashes for 10, 1, .50, .01, .01, and .01, just like with cash today. Unfortunately, what is just stopping people from copying notes, then? With paper money it’s illegal and there are various features (watermarks, holograms, etc) to make it difficult. Unfortunately it’s infeasible to make each note a little program that is unique and cannot be duplicated (well, maybe you could have it be some sort of java program but it seems incredibly hard)– for one, that means you’re not able to write down hashes and give them to someone. Unfortunately the solution seems to be to have some sort of registration of notes, such that each note is tied to a device (until transferred) and the issuing authority will reject any other instances of the note that don’t match the checksums.